Hoho Property Pty Ltd v Bass Finance No 37 Pty Ltd

1. [1]

   HER HONOUR: This is an application by the defendants for a gross sum costs order. The plaintiffs brought a late application for a substantive amendment to their pleadings, which led to the vacation of the trial. The plaintiffs were ordered to pay the defendants’ costs of the application and costs thrown away.

2. [2]

   As to the substantive proceedings, the plaintiffs borrowed $2.35 million from the first defendant, Bass Finance No 37 Pty Ltd, secured over a development site in Liverpool and the plaintiffs’ family home in Cabramatta. The second defendant, Premier Finance Australia Pty Ltd, was the plaintiffs’ finance broker. The proceedings were commenced on 25 May 2021 and initially included a consensual interim injunction regime, precluding the financier from enforcing its rights under the finance documents. This regime was brought to an end by Williams J in October 2021: Hoho Property Pty Ltd v Bass Finance No 37 [2021] NSWSC 1289. The Liverpool property was sold at auction. The principal owed to Bass Finance was repaid; interest and fees remain unpaid. In November 2021, Ball J listed the matter for final hearing for five days before me, commencing on 4 July 2022.

3. [3]

   The plaintiffs then sought declarations that the finance documents were void or, alternatively, orders setting aside the finance documents on the grounds of duress, unconscionable conduct or pursuant to the Contracts Review Act 1980 (NSW). In addition, the plaintiffs sought relief such that the broker was not entitled to its fee of some $200,000. On 20 May 2022, the plaintiffs circulated proposed amendments to the Summons and Commercial List Statement; the defendants’ consent was not forthcoming. On 8 June 2022, the plaintiffs filed a motion seeking leave to amend their claim against the finance broker to seek damages in the event that the finance documents were found to be enforceable, being “damages that effectively indemnify them for their liability” to Bass Finance.

4. [4]

   Bass Finance re-listed the matter before me on 17 June 2022, “because we didn’t know what was going on … and no one was telling us what anyone’s position was.” It became apparent that, should leave to amend be granted, the hearing would need to be vacated given the substantial increase in the quantum of the claim against the broker and additional evidence which the broker may call to defend that claim. It was also apparent that, even if the plaintiffs were ordered to pay costs thrown away, such an order may be hollow given the plaintiffs’ financial position.

5. [5]

   Whilst efforts were made at the conclusion of the hearing for the parties to agree on the amount of costs thrown away by reason of the amendment and the vacation of the hearing, no agreement was reached. Bass Finance suggested $95,000; the broker suggested $50,000; the plaintiffs did not proffer any amount. The plaintiffs’ counsel submitted, quite rightly, that there was no evidence before the Court to support the defendants’ figures, which the plaintiffs were unable to interrogate. Thus, at the conclusion of the hearing on 17 June 2022, I made the orders granting the plaintiffs leave to amend, vacating the hearing and inter alia:

6. [6]

   The substantive matter had since been re-listed for a seven day final hearing commencing on 5 December 2022.

7. [7]

   I have since received short affidavits from Bass Finance’s solicitor, Danielle Funston and the broker’s solicitor, Alistair Little. I have also received extensive affidavit material in reply from the plaintiffs, being an affidavit by their solicitor, Peter Morris, and a report from costs consultant, Toni Mossman. The whole point of a gross sum costs order is to avoid the intricacies, and associated expense, incurred in a full costs assessment process. The costs savings sought to be achieved by the orders I made have, I suspect, been undermined by the amount of time taken by the plaintiffs and, now by myself, to review each of the material submitted in detail.

Whether appropriate to make gross sum costs order

1. [8]

   Section 98(4)(c) of the Civil Procedure Act 2005 (NSW) provides:

2. [9]

   As Giles JA noted in Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [21]: (citations omitted)

3. [10]

   It is a relevant consideration “where the financial capacity of the party liable to pay costs is such that the additional cost of taxation will impose a significant burden on the party in whose favour costs are ordered without real prospects of recovering those costs”: Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 at [24], citing Hadid v Lenfest Communications Inc [2000] FCA 628; Sparnon v Apand Pty Ltd [1998] FCA 164; Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788; [2005] FCA 228; Bitek Pty Ltd v iConnect Pty Ltd (2012) 290 ALR 288; [2012] FCA 506 at [17].

4. [11]

   I consider that this is an appropriate case to specify a gross sum instead of putting the defendants to the further time and expense involved in an assessment of their legal costs in circumstances where it is unclear whether the plaintiffs have the ability to pay the costs order in any event; and, placing an additional burden on the defendants to undertake a costs assessment process may be for no useful purpose.

Fixing a sum

1. [12]

   In Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23, Einstein J summarised the principles which inform the exercise of the discretion to specify a gross sum, at [9]:

2. [13]

   His Honour’s summary has been cited with approval in the Court of Appeal: Hamod v New South Wales [2011] NSWCA 375 per Beazley JA, with whom Giles and Whealy JJA agreed, at [793]. Her Honour continued, at [816]:

3. [14]

   And at [820] (citations omitted):

4. [15]

   Further, as Ball J explained in Baychek v Baychek [2010] NSWSC 987 at [11]:

5. [16]

   The plaintiffs submitted that the gross sum costs orders ought not exceed the amounts suggested by Ms Mossman. These were amounts that the defendants might reasonably expect to recover on assessment as some of the work for which costs were claimed was said not to fall within the costs order. Some of the charges were said to be excessive. The discounts applied by Ms Mossman were less than in In the matter of Boss Constructions (NSW) Pty Ltd (No 2) [2019] NSWSC 554, when I observed: “In my experience, costs on an ordinary basis are generally between 60 and 75% of a party’s actual legal costs”: at [13].

Bass Finance’s costs

1. [17]

   Bass Finance’s solicitor, Ms Funston, provided her firm’s time records together with fee disclosures and invoices rendered by senior and junior counsel. Bass Finance’s costs in relation to the plaintiffs’ motion were $15,835, including solicitor and counsels’ fees.

2. [18]

   As to costs thrown away by reason of the vacation of the hearing, Ms Funston said that Bass Finance has incurred legal costs in preparing the matter for final hearing since 10 February 2022. The solicitors had performed work recorded on the solicitor’s computerised records totalling $10,272, of which Ms Funston considered approximately half was wasted. Senior and junior counsel also each considered that roughly of half of their fees had been wasted, to which was added an $18,000 cancellation fee charged by senior counsel. In total, the costs thrown away by reason of the vacation totalled $43,198.60. In addition, the costs of preparing Ms Funston’s affidavit was $2,915.

3. [19]

   In total, Bass Finance’s costs thrown away by reason of the plaintiffs’ amendments and the consequential vacation of the hearing were $61,948.60 exclusive of GST.

4. [20]

   Ms Mossman considered that Ms Funston’s opinion that half of the preparation costs incurred by her firm and counsel were wasted was not unreasonable. Mr Newlinds SC’s cancellation fee should not be allowed; cancellation fees charged by counsel are not generally allowed on the assessment of party/party or ordered costs. Further, Ms Mossman opined that a typical reduction to solicitor’s costs for party/party or ordered costs was somewhere between 15% and 25% and, for counsel, between 5% and 15%. Ms Mossman considered that a discount of 20% was reasonable with respect to the solicitor’s costs, 5% discount for Bass Finance’s junior counsel’s fees and, given the fact that Mr Newlinds SC’s fees were “considerably more than the highest rate set out in the Guideline” issued by the New South Wales Costs Assessment Rules Committee on 16 March 2016, a reduction of 50% was reasonable. Overall, Ms Mossman considered that $30,212.43 should be allowed for Bass Finance.

5. [21]

   The obligation to pay counsel’s cancellation fees arises from the instructing solicitor’s acceptance of counsel’s costs agreement setting out such fees. No costs agreement had been issued, or accepted, when I made the costs order on 17 June 2022. Bass Finance then had no contractual obligation to pay the cancellation fee. There is thus nothing to pass onto the plaintiffs.

6. [22]

   In any event, I would not have been minded to include counsel’s cancellation fees in a gross sum costs order. Whilst a solicitor and their client may be prepared to agree to pay cancellation fees in order to retain a particular counsel, such fees are not standard or, indeed, common. I do not consider it just or fair that another party to the litigation should inherit the obligation to pay such a fee by reason of the briefing choices of others. As Wilcox J observed in Commissioner of the Australian Federal Police v Razzi (No 2) (1991) 30 FCR 64 at 67:

7. [23]

   Razzi has been widely followed, including by Edelman J in Pilbara Infrastructure Pty Ltd v Brockman Iron Pty Ltd (No 2) [2014] WASC 345 at [39]. Similarly, in The Queen v Martinello [2005] ACTSC 109, Connolly J considered that cancellation fees were not caught within a general form of costs order: at [9]. See also GE Dal Pont, Law of Costs (5th ed, 2021, LexisNexis) at [17.54].

8. [24]

   Otherwise, the difference between Bass Finance’s solicitor and Ms Mossman is that Ms Mossman has further discounted the solicitor’s and counsel’s fees by differing percentages to reflect the amount which these fees may be reduced on a costs assessment, being by 5% for junior counsel, 20% for the solicitor and a rather hefty 50% for senior counsel. Overall, and excluding senior counsel’s cancellation fee, I consider a gross sum of $35,000 to be appropriate.

Broker’s costs

1. [25]

   The broker’s solicitor, Mr Little, said the costs incurred in relation to the motion, together with the costs thrown away by reason of the amendments and vacation of the trial totalled approximately $48,977.50, comprising solicitor’s costs ($22,852.50), junior counsel’s fees ($23,355) and the costs of preparing his affidavit ($2,770).

2. [26]

   Whilst the finance broker had not briefed senior counsel, and no cancellation charge was included, the finance broker had to brief new counsel after the matter was listed for hearing in July 2022, as its then counsel was not available to appear. As the matter had now been re-listed for final hearing in December 2022, the costs of briefing new counsel had proved unnecessary.

3. [27]

   Ms Mossman went through the broker’s solicitor’s and counsel’s fees in some detail, effectively conducting an assessment of these costs. Ms Mossman considered that $6,500 of the solicitor’s fees were not thrown away but expended on work likely to be useful for the ongoing conduct of the matter. A further $2,296.90 was excluded, being the costs of briefing new counsel. The costs of junior counsel reading the new brief, being $5,400, were also excluded. Ms Mossman also reduced junior counsel’s fees by 50% to reflect work done that may have ongoing utility in the matter, resulting in a further reduction of $2,430. Ms Mossman considered a further reduction of 15% on the solicitor’s fees and 5% to the fees charged by its counsel was appropriate. Overall, Ms Mossman considered that $29,389.73 should be allowed for the broker’s costs.

4. [28]

   It is not entirely clear to me why Ms Mossman has excluded some of the costs identified. I agree that, whilst the broker may have had to brief new counsel, associated costs do not necessarily lie at the feet of the plaintiffs. Listing the matter for hearing in July 2022 appears to have been done by the List Judge, presumably to have the matter determined as soon as possible rather than by reference to the plaintiffs as such. Excluding these costs, and looked at overall, I consider that an appropriate gross sum for the broker’s costs is $35,000.

ORDERS

1. [29]

   For these reasons I make the following orders:

   1. (1)

      Order pursuant to section 98(4)(c) of the Civil Procedure Act 2005 (NSW) that the first defendant is to be entitled to a specified gross sum in the amount of $35,000 (exclusive of GST) in respect of the costs order made on 17 June 2022.

   2. (2)

      Order pursuant to section 98(4)(c) of the Civil Procedure Act 2005 (NSW) that the second defendant is to be entitled to a specified gross sum in the amount of $35,000 (exclusive of GST) in respect of the costs order made on 17 June 2022.

   3. (3)

      The amounts in Orders 1 and 2 are to be paid within 28 days, failing which the defendants may exercise liberty to apply on two days’ notice to seek a stay of the proceedings.